U.S. Dollar Index Poised to Change Trend

The strong rally in the U.S. Dollar againstall major Forex markets has put this index in a position to change the trend toup.

A story circulating in the Wall StreetJournal is the catalyst behind today’s rally in the Greenback. In the article, the WSJ suggested the Fed“may opt for a more measured dose of QE this time around rather than theshock-and-awe version which characterized QE1”.

The strong rally in the U.S. Dollar againstall major Forex markets has put this index in a position to change the trend toup.

A story circulating in the Wall StreetJournal is the catalyst behind today’s rally in the Greenback. In the article, the WSJ suggested the Fed“may opt for a more measured dose of QE this time around rather than theshock-and-awe version which characterized QE1”.

Traders are paring long positions againstthe Greenback as they seem to believe that the Fed is giving in to some G20criticism regarding their aggressively expansionary monetary policy. A few G20members believe that the Fed’s aggressive spending has been driving up assetsin the past, but that today’s global economic conditions warrant a moreconservative approach to stimulating the economy.

The article goes on to further state thatthe Fed is likely to purchase a few hundred billion dollars of Treasury Bondsrather that the previous estimate of $1 trillion. This speculation is leading investors whoaggressively shorted the Dollar to lighten up on their positions, triggering ashort-covering rally in the Greenback.

Technically the Dollar Index is poised totake out the last swing top on the daily chart at 79.18. A move through thislevel will turn the main trend to up. Initial gains could be limited becausethe nearest resistance is a 50% level at 79.58, but once this level isovercome, look for an extension of the rally to 80.46.

In other markets, the AUD USD has formed asecondary lower top, putting this pair in a position to change the trend todown on a move through the last swing bottom at .9661. Further supporting thisassessment is the fact that today’s sell off has pressured this market throughan uptrending Gann angle at .9670. Currently minor support is being provided bya short-term Fibonacci level at .9658.

The bigger picture suggests that a changein trend to down is imminent, putting the Aussie/U.S. Dollar pair in a positionto accelerate to the downside with .9386 a possible target.

Fundamentally, the Australian Dollarweakened after a report showed that quarterly inflation was slightlyweaker-than-expected. This news dampened expectations that the Reserve CentralBank of Australiawould raise interest rates at its next meeting on November 2.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

Disclainer: